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By Catherine Saez Retaliating against a country found in violation of World Trade Organization rules by sanctioning the country’s activities in an unrelated trade sector may be a more effective alternative for developing countries than retaliating under the sector of the violation, especially when such cross-retaliation involves WTO rules on intellectual property rights, an expert told a panel this week.

Retaliation measures usually available to developing country complainants against non-complying members after a favourable ruling of the WTO Dispute Settlement Body sometimes appear to have an insignificant impact on the non-complying country and even harmful effects on the developing countries’ economies. Cross-retaliation may then seem to be an effective alternative to enforce WTO rulings, according to Henning Grosse Ruse-Khan from the Max Planck Institute for Intellectual Property.

Grosse Ruse-Khan presented a paper entitled, “Suspending IP Obligations under TRIPS: a Viable Alternative to Enforce Prevailing WTO Rulings?” [pdf] at a 6 May event of the Center for International Environmental Law. The event included an audience of government officials, international organisations, regional institutions and NGO representatives who were invited to share comments on the paper. A full paper on the subject will be published soon in the Journal of International Economic Law.

Generally, those recommendations aim at the modification or withdrawal of national measures found to be in conflict with WTO law, said Grosse Ruse-Khan. However, if a member country does not conform to those recommendations, as a last resort, the complainant country may ask to retaliate by temporarily suspending tariff concessions or other WTO obligations. This type of retaliation can have a negative impact on the prevailing country, given the imbalances in trade and economic power amongst WTO members, as prices from imports may rise to unacceptable levels for the local population.

In two recent prominent WTO rulings, developing country complainants who won are using the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) to induce compliance. Brazil, in a dispute against the United States over cotton subsidies, and, in a case brought by Antigua against the US for measures prohibiting cross-border supply of gambling services from Antigua, announced their intention to “cross-retaliate” by suspending obligations under TRIPS.

The impact of raising tariffs or other barriers on imports from the violating country sometimes has been said to be passed on to the winning country’s own population by raising prices or reducing availability of the product or service in question. In the Antigua case, the tiny Caribbean nation assessed that retaliating against US services could negatively impact Antigua’s own vital tourist industry.

IP cross-retaliation, in some cases, can be “effective, legal and practical” to enforce a WTO ruling as the WTO rules allow members to use it under specific circumstances, Grosse Ruse-Khan said. As intellectual property often represents the main asset of many developed countries, suspending TRIPS obligations is likely to be a very efficient tool to bring those countries into compliance with WTO laws, he said. As some observers have put it, this action can force a reaction from the powerful content industry in Washington, which could help provoke compliance.

For the developing country using cross-retaliation, it can increase the availability of the IP-protected goods or services in the domestic market, for example by authorising the production of a fixed amount of a crucial medication, said Grosse Ruse-Khan. It could also be extended to copyrights, allow translation and reproduction of scientific textbooks for educational purposes, and enable domestic research institutions and industry to access the protected technology.

One downside to TRIPS cross-retaliation might be that the content industries also have a close connection to public opinion, at least in the United States, some observers have said. Since the WTO’s acceptance of Antigua’s request to pursue remedies through TRIPS, there has been some public criticism, with some popular press painting the nation as a “pirate of the Caribbean” for not enforcing IP rights. In fact, it is unclear whether a nation winning a dispute would even use the retaliation given the pressure they face. But it could give them an additional bargaining chip in their bilateral relations with the bigger economy, observers say.

Conditions for Cross-retaliation

In principle, according to the WTO Dispute Settlement Rules, the sanctions should be imposed in the same sector as the dispute. If this is seen as not practical or effective, the sanctions can be imposed in a different sector of the same agreement. If this in turn would not be effective or practicable and the circumstances are serious enough, the action can be taken under another agreement. The objective is to minimise the chances of actions spilling over into unrelated sectors, while at the same time allowing the actions to be effective.

The retaliating country must show that those criteria apply when asking for cross-retaliation, which might be tricky, especially when it comes to proving “serious circumstances.” But Grosse Ruse-Khan considers that “all small economies, when strongly affected by WTO violations, can meet these conditions.”

Suspending IP protection could conflict with distinct international obligations to protect IP, Grosse Ruse-Khan said, for example in some bilateral free trade agreements with ‘TRIPS-plus’ obligations (requirement to provide stronger IP protection than in TRIPS) or multilateral agreements on IP protection outside the WTO with overlapping or additional obligations.

Any authorisation to suspend IP protection under TRIPS generally does not extend to obligations the retaliating country might have under different multilateral IP agreements with the non-complying country. As a general rule, simultaneously suspending IP protection below or on an equal level with the TRIPS minimum standards should be justified under the general right to adopt countermeasures (against non complying members).

Reaction of Commenters

Thomas Sebastian, policy expert at the Advisory Centre for WTO Law, said he was in broad agreement on most points of the study. The benefit of cross-retaliation on population welfare is clear although it is too early to generalise from the two recent cases, he said.

“There are still a lot of discussions around this,” he said, emphasising that countries wanting to cross-retaliate have a lot of work to do to prove that they have to resort this approach. He also warned about the efficiency of IP lobbies, saying, “They will be able to influence policy change.”

One of the key constraints remains the problem of equivalence, according to Sebastian. It would be difficult to come up with a system that would measure equivalence he said. Retaliating countries must ensure equivalence between the level of obligations suspended and the level of impairment of benefits. In the US gambling dispute, Antigua was granted the right to request authorisation to suspend protection of various IP rights under TRIPS at a level of US$21 million annually, while Antigua had asked for US$3.443 billion and US had argued for US$500,000, according to Grosse Ruse-Kahn.

A retaliation request cannot be vague; it has to be accurate, which could prove difficult for developing countries, said Sebastian.

A Belgian government representative argued that as much as 75 percent of IP rights may be in the United States, so chances were that this cross-retaliation system could only apply to disputes with that country. With very few IP rights in developing countries, he asked how cross-retaliation could work in South-South disputes. Grosse Ruse-Khan answered that India and China had strong interests in IP so even in some South-South disputes it could be a valuable alternative.

Comments

The trade regime as represented by the World Trade Organization is in dire needs of reforms so that there is a greater balance between the needs and obligations of the countries. There is a need for the effective enforcement of the obligations of various countries and in this the IP regime could definitely play an important role